Activity records slowest expansion in three quarters in Q4

GDP growth lost momentum and came in at 1.0% year on year in the fourth quarter, based on unadjusted series in chain-linked volume technique with reference year 2020, down from 3.6% in the third quarter. Q4's reading marked the softest expansion since Q1 2023. On a seasonally-adjusted quarter-on-quarter basis, economic activity dropped 0.5% in Q4, contrasting the previous quarter's 1.0% growth. Q4's reading marked the sharpest drop since Q1.

Public consumption dropped at the sharpest pace since Q2 2022, contracting 2.9% (Q3: +8.8% yoy). Meanwhile, fixed investment growth fell to 8.6% in Q4, marking the worst result since Q2 2022 (Q3: +11.3% yoy). Conversely, household spending increased 3.4% in the fourth quarter, which was above the third quarter's 1.5% expansion. On the external front, exports of goods and services contracted 6.8% in Q4, marking the worst result since Q3 2020 (Q3: -3.4% yoy). Conversely, imports of goods and services dropped at a softer pace of 1.8% in Q4 (Q3: -8.3% yoy).

The economy should gain traction this year from last. Consumer spending should accelerate thanks to lower inflation, rising wages and pension increases. Moreover, industrial activity should recover on improving external demand. Fiscal consolidation efforts and progress on reforms are factors to watch.

Commenting on the outlook, Erste Bank’s Vlad Ionita stated: “We stick to our call of +2.6% GDP growth in 2024 in the light of the recent data. The private consumption momentum started in Q4 2023, and it is expected to continue throughout 2024 as strong real wage growth, looser monetary policy conditions and better external demand prospects should nurture higher private spending. We also expect the gross fixed capital formation contribution to remain significant in 2024 supported by inflows of EU funds and continued state investments into infrastructure.”

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